The Morning Risk Report: The Gritty Side of Farmland Investing

Morgan Stanley for a while owned farmland in Ukraine while the Municipal Employees’ Retirement System of Michigan was part of a consortium that recently bought 50% of Australia’s almond-producing land. Worldwide, farmland is a hot investment area, but it’s also controversial, opaque, illiquid and sometimes relies on local operation that presents a risk of fraud.

The reputational risk in these investments lies in their frequent characterization in the blogosphere as being a form of colonialism and coming at the expense of food production for local consumption. The Oakland Institute is a leading proponent of this view and just published its latest critique of farmland investing, focused on the U.S. Public pensions, in particular, are often sensitive to such criticism.

Another risk inherent in these investments is that they’re dependent on local knowledge and operation. Harvard University may have been the victim of fraud in a purchase of forest land in Romania, while Morgan Stanley sold its Ukrainian farm after encountering trouble with local officials and theft, according to a report by Bloomberg. Harvard and Morgan Stanley are heavyweight investors but there may be a greater risk for smaller, less-experienced investors chasing such big boys into this modish asset class. David Thelander of advisory firm Thelander Advisers said all potential investors in farmland should ask themselves whether they have “staff and resources in place to carry out due diligence.” Caution is also in order because farmland investment management firms, especially overseas, aren’t likely to have the same experience of working under tight regulatory scrutiny as, say, as registered investment advisory firm in the U.S., Mr. Thelander said.